Senate Climate Bill Should Redirect Resources from Business to Consumers

The federal government is working to pass climate legislation that would combat global warming by reducing the nation’s emissions of greenhouse gases. One impact of the proposals to cap emissions would be an increase in the cost of fossil fuel energy and energy-related goods. Low and moderate income consumers would be hit harder by these increased costs because they spend a bigger share of their income on necessities like energy than wealthier households do.

The House bill, which passed in June, sets aside 15 percent of the value of emissions allowances (the permits that allow companies to pollute) to provide financial relief to low-income consumers through an energy refund. Here in Washington State, there are 1.2 million people living below 150 percent of poverty* who could potentially benefit from the energy refund.

However, CBO has found that over 60 percent of the relief the bill would distribute through utilities would go to businesses, rather than individual households. Businesses would likely retain this relief as added profit benefiting high income owners and shareholders rather than pass it on to consumers in the form of lower prices for their products. Thus the graph below shows that the House bill would benefit higher income households, as a percentage of income, more than those in the middle.



According to this paper by the DC-based Center on Budget and Policy Priorities, the Senate bill which has yet to be voted on, should build on the House approach by adopting the consumer provisions and redirecting resources provided through utility companies for their business and industrial customers instead to moderate income households.

*Calculated from American Fact Finder ACS 2007 table B17002

Budget & Policy Center Urges Cantwell To Offset Consumer Costs in Climate Bill

Yesterday, the Budget & Policy Center’s Communication and External Relations Director Aiko Schaefer joined members of the environmental, business, labor and faith communities in a meeting with Senator Maria Cantwell to convey the urgency of passing climate change legislation this year.

The Budget & Policy Center has been working with a broad group of stakeholders to ensure that climate legislation serves to control greenhouse gas emissions and develop renewable energy technologies while also offsetting any increased energy costs to consumers.

In addition to discussing the concerns of consumers in climate change policy with the senator, Aiko also delivered this letter, signed by many of our partners, highlighting the importance of mitigating the impact of any legislation on low and moderate income households.

Stay tuned for more updates and analysis as the climate change debate in DC continues.

Update: How to Lower Costs of Climate Change Policies for Consumers

The Budget & Policy Center is releasing a new policy brief today on a federal climate rebate proposal. With cap-and-trade legislation currently being drafted in the U.S. House Energy and Commerce Committee, it is critical that lawmakers adequately address the regressive financial impact that any carbon-pricing policy will have on lower and moderate income households. The paper provides a framework for how a climate rebate assisting lower and moderate income households can be integrated into federal climate policy.

A climate rebate represents an effective and efficient strategy for mitigating the household budget impact of a cap-and-trade system. It would utilize existing benefit and tax structures to deliver a cash rebate to lower and moderate income families, would be fully funded from cap-and-trade emission permit revenue, and would reach virtually all eligible families.

An important strength of a climate rebate is that it would address the shortcomings of other consumer assistance proposals, such as a utilities approach. For more information on how a climate rebate would work, please refer to our paper.

Update: Yesterday, the U.S. House Energy and Commerce Committee concluded the markup of the American Clean Energy and Security Act of 2009 (H.R. 2454) by voting to move it out of committee. Introduced by Reps. Henry Waxman (D-CA) and Ed Markey (D-MA), the bill (commonly referred to as Waxman-Markey) would cap the emissions of greenhouse gases in order to curb climate change.

Importantly, the Waxman-Markey bill includes provisions to protect lower income consumers from the financial impact of climate policy, similar to the recommendations outlined in our recent policy brief (based on analysis by the CBPP). In particular, the bill would allocate 15 percent of emission permit revenue to fully offset the average loss in purchasing power for lower income consumers. For more information on the bill, refer to the Center on Budget and Policy Priorities’ recent report.

Climate Series #4: Utilities are a Limited Option for Offsetting Increased Energy Costs

As noted in previous posts, Congress is considering legislation to implement a cap-and-trade program to restrict greenhouse gas emissions in order to curb climate change. Although such a program would have a positive impact on the environment and the health and well-being of communities, it would also cause regressive energy cost increases for lower income households.

Relying on utility companies for consumer assistance has emerged as one strategy to offset the costs. However, according to a recent report by the Center on Budget and Policy Priorities there are limitations to this approach.

For starters, utility bills will account for less than half of the total rise in energy costs for lower income households. As illustrated in Figure One, over 50 percent of the cost impact experienced by lower income consumers would be due to increases in the price of gasoline, home energy bills other than utility bills, and energy-intensive products, such as food.


Importantly, a utilities approach would reduce the incentive for lower income consumers to conserve energy. A key goal of a cap-and-trade system would be to motivate consumers to reduce their energy consumption by modestly raising prices. Because lower income households’ utility bills would be reduced under a utilities strategy, these households would have less of an incentive to conserve energy.

And finally, lower income households whose utilities are built into their rents, might not receive adequate compensation. Instead of a utilities approach, see our post on an alternative rebate strategy proposed the Center on Budget and Policy Priorities.

Climate Series #3: Offsetting Increased Energy Costs for Lower Income Households

A cap-and-trade system is being considered at the federal level as a strategy to reduce and regulate greenhouse gas emissions. Although such a system will be good for the environment, it is expected to cause a modest increase in the price of energy and energy intensive products.

Current energy costs consume a disproportionate share of income for lower wage households. As illustrated in Figure One, households in the bottom fifth of the income scale spend about 21 percent of their income on energy compared to four percent for the wealthiest households.



The Congressional Budget Office estimates that a 15 percent reduction in greenhouse gas emissions will lead to more than a three percent increase in energy costs for lower income consumers. By contrast, the same reduction of emissions will only lead to less than a two percent increase for the wealthiest households.

Existing tax and benefit systems can be used to mitigate a cap-and-trade program’s regressive effects on lower income households. The Center on Budget and Policy Priorities has introduced such a proposal in which qualifying households would receive a climate rebate to help offset the increased energy costs. The proposal represents an efficient and effective strategy to protect lower-income consumers and should be considered in any federal climate policy.

It should be noted that left unhindered, greenhouse gas emissions will likely result in higher costs to consumers. A recent report by the Climate Leadership Initiative at the University of Oregon has projected that in Washington State alone, households will experience $1,250 in additional costs on average as a result of climate change per year by 2020 if no action is taken to reduce greenhouse gas emissions.

Up Next in the Series: The limitations of using utility companies to protect lower-income consumers.

Climate Series #2: Why Cap and Trade?

Climate change caused by the emission of greenhouse gases presents a serious threat to the environment, the health and well-being of communities, and the economy. Congress has acted to address climate change through a national cap-and-trade policy proposal recently introduced in the House Energy and Commerce Committee.

The creation of a national cap-and-trade program has the potential to curb climate change while simultaneously creating new opportunities and supporting economic security in communities across the nation. The purpose of a cap-and-trade program is to establish concrete greenhouse gas emission reductions and to generate market-based incentives for consumers and companies to conserve energy. For a comprehensive report on how a cap-and-trade program would work, check out the Sightline Institute’s cap-and-trade policy primer.

Climate Change: Governor’s new proposal protects consumers with lower incomes

Clean air and energy independence are central to advancing the well-being of families and communities, as well as improving the economic security and social opportunity of all Washingtonians.

Today Governor Gregoire announced climate change legislation (HB 1819 and SB 5735) that would implement a "cap-and-invest" system to reduce global warming pollution. The proposal would also invest in the creation of green jobs and worker retraining for those who have been affected by the economic downturn.

An innovation of the proposal is that it prioritizes the use of cap-and-trade auction revenue, with the top priority being to protect consumers with lower and moderate incomes from increased energy costs. Revenue would be generated when pollution permits are auctioned off to polluting companies, who will pass costs on to consumers. Using some of the revenue to offset these higher costs for people with lower incomes assures that the impacts of climate change are not regressive.

We have been working in close collaboration with Climate Solutions, Washington Environmental Council, and Sightline Institute on shaping the state’s climate change policies. There is still work to be done. We will continue our work to shape this discussion as it progresses at the state and national levels.

You can learn more about this on our website and read a joint letter to Governor Gregoire signed by the Budget & Policy Center along with environmental groups, the faith community, low income advocates, and organizations representing communities of color.

Green Jobs and the Economy

Last year, the State Legislature passed, but did not fund, the Climate Action and Green Jobs law.

Investing in green jobs is an important part of a strategy to strengthen our economy. Coming out of the recession, we will need a trained and qualified workforce earning living wages and participating fully in the economy. Training those workers for growing targeted industries such as renewable energy is smart for the economy and good for the environment.

The green jobs initiative would include the creation of pilot green industry skills panels to ensure that trained workers will be able to meet the needs of local industry. It also calls for an increase in the opportunity grants program for green industry training to provide tuition assistance and support services for lower income students as well as funding for curriculum development in this sector.

Many of these initiatives would not be new programs. Community colleges across the state already have existing wind, solar, and biofuel programs that could be scaled up. Federal money is expected to help states embrace the green energy movement. State investments in this area could be used to leverage money from the federal stimulus package.

The need for investments in community colleges and training is especially great during a recession. The graph below shows what happened to enrollment in workforce training programs during the last recession - it rose sharply along with the state unemployment rate.


Funding the green jobs bill would not be enough to offset the deep cuts in community colleges in the Governor's 2009-11 budget proposal. These cuts would place limits on enrollment, raise tuition, reduce classes and services and diminish the ability of lower income workers to prepare for and find jobs in the new economy.

Climate Change Fairness in the House Ecology Committe

Our executive director Remy Trupin made a presentation today to the House Ecology and Parks Committee work session on ensuring that climate change policy protects lower income consumers.

During the work session, Representative Upthegrove talked about a letter that was sent to the Governor last summer calling for equitable action on climate change. It was signed by a broad coalition of environmental, faith, and social justice organizations.

Alan Durning from Sightline also presented alongside Remy. Alan has written a useful primer on cap and trade policy. Sightline is one of the many organizations we've been working closely with to develop smart policy solutions to the problem of climate change.